Beginning on January 1, 2024 the US Corporate Transparency Act (CTA), part of the Anti-Money Laundering Act of 2020, requires “reporting companies” to file with the Financial Crimes Enforcement Network of the US Department of the Treasury (FinCEN) reports containing personal information about the company’s beneficial owners.  The reports are intended to help prevent and combat money laundering and other illicit activity in the United States by providing information to law enforcement and national security agencies about the owners of such entities.  This summary is presented for informational purposes only and should not be construed as legal advice.

Reporting Companies and Exemptions

Only “reporting companies” are subject to the CTA’s reporting requirements.  A “reporting company” includes (1) domestic reporting companies, which include any corporation, limited liability company, limited partnership or similar entity created by filing a document with any US state, territory or Indian tribe, and (2) foreign reporting companies, which include any non-US entity that registers to do business with any US state, territory or Indian tribe.  Trusts (other than trusts created by a filing, such as statutory or business trusts) are themselves not reporting companies.

There are 23 types of entities that are exempt from the CTA reporting requirement, including, generally:

• Governmental entities
• Publicly-traded companies
• Banks, credit unions and other financial institutions
• SEC registered broker-dealers, investment advisers and investment companies
• Certain pooled investment vehicles
• Large operating companies, which are generally defined in the regulations as companies that (1) have more than 20 full-time employees in the US, (2) have an operating presence at a physical office within the US, AND (3) have filed a federal income tax or information return in the US for the previous year demonstrating more than $5,000,000 in gross receipts or sales (excluding gross receipts or sales from sources outside the US). Meeting the 20 full-time employees requirement is tested on a per-entity basis, but the gross receipts or sales reported on the tax return requirement can be measured based on the reported gross receipts or sales of a consolidated group on a consolidated tax return.

Initial Report Due Dates

Reporting companies formed before January 1, 2024 will have until January 1, 2025 to file their initial report with FinCEN.  Reporting companies formed on or after January 1, 2024, and before January 1, 2025, must file their initial report within 90 days of the company’s formation.  Reporting companies formed on or after January 1, 2025 must file their initial report within 30 days of the company’s formation.

Information Required to be Reported

Reporting Company:  Each reporting company must provide the company’s legal name, trade name or “doing business as” name, current address, the company’s jurisdiction of formation (or, for a foreign reporting company, the state, territory or tribal jurisdiction where it first registers) and the company’s EIN. Foreign reporting companies must provide a foreign tax identification number if they do not have an EIN.

Beneficial Ownership Information:  Reporting companies must identify each of their “beneficial owners.”  A “beneficial owner” is any individual who, directly or indirectly, exercises “substantial control” over the reporting company OR “owns” or “controls” at least 25% of the “ownership interests” in a reporting company (ownership interests include equity, stock, or voting rights, capital or profit interests, convertible instruments, options, and any other instrument, contract, or other mechanism used to establish ownership).  The regulations provide guidance for “substantial control” and “owns or controls.” For example, an individual has substantial control if such individual exercises a certain degree of power over a reporting company, like serving as a senior officer (e.g., president, chief executive officer, chief financial officer or general counsel) for the company.  This definition is broad and can include anyone who has the authority to appoint or remove certain officers or a majority of directors or who has direction or substantial influence over important matters at the reporting company, such as compensation schemes and incentive programs for senior officers.  A reporting company can have multiple beneficial owners.

Company Applicants:  Reporting companies formed on or after January 1, 2024 also must identify up to two “company applicants”.  The two company applicants include (1) the individual who directly files the document to create or register the reporting company and (2) the individual who is primarily responsible for directing or controlling such filing (if more than one individual participates in the filing).

For every beneficial owner and company applicant, the report must include the individual’s full legal name, date of birth, current residential address (or business address for a company applicant if in the business of forming entities), and a unique identifying number from a non-expired US passport, driver’s license or other identification document issued by a state, local government or Indian tribe, and an image of the document from which the unique identifying number was obtained.  Alternatively, a FinCEN identifier can be provided.

Reporting companies may in certain instances report a “FinCEN identifier” instead of the information for an individual beneficial owner or company applicant.  A FinCEN identifier is a unique identifying number that FinCEN will issue to individuals or entities upon request.  A FinCEN identifier could facilitate easier reporting for reporting companies and additional privacy/protection for individuals and allow for fewer updated reports to be filed by reporting companies (which are generally required for changes in reporting company information or beneficial ownership information within 30 days of the change).

How to File a Report

Reports must be filed electronically through a portal that is under development by FinCEN, known as the Beneficial Ownership Secure System (BOSS).  BOSS is not yet publicly available, and further information is to be made available at https://www.fincen.gov/boi.

Updates to Reports

Reporting companies are required to update to their reports within 30 calendar days after any change in the information previously provided to FinCEN about the company or its beneficial owners.  The obligation to update information applies to companies that have filed a report but subsequently meet the criteria for an exemption.  Information regarding company applicants is not required to be updated.

If there are errors in a report, a corrected report is required to be filed within 30 calendar days after the date on which the reporting company became aware or had reason to know of an inaccuracy in the report.  The CTA includes a safe harbor if a corrected report is filed within 90 calendar days after the date on which an inaccurate report is filed.

Penalties for Non-Compliance

Non-compliance with the CTA and/or willfully providing false or misleading information as a part of a report can result in civil penalties up to $500 per day (with a maximum fine of $10,000) and/or criminal penalties including imprisonment for up to two years in federal prison.  Individual employees who prepare and submit reporting information may be held personally liable for false reports.

Access to Reports

Under the CTA, FinCEN is authorized to disclose reported information to:  (1) U.S. federal agencies engaged in national security, intelligence, and law enforcement activities; (2) state, local, and tribal law enforcement agencies with court authorization; (3) the U.S. Department of the Treasury; (4) financial institutions using beneficial ownership information to conduct legally required customer due diligence; (5) federal and state regulators assessing financial institutions for compliance with legally required customer due diligence obligations; and (6) foreign law enforcement agencies and certain other foreign authorities who submit qualifying requests for the information through a U.S. federal agency.

Reporting will not be accessible to the public and is not subject to Freedom of Information Act requests.  In order for reported information to be released to a financial institution, the reporting company must certify its consent to such release as part of its reporting or amended reporting.

The CTA requires the Secretary of the Treasury to maintain the beneficial owner information in a secure, nonpublic database, using information security methods and techniques that are appropriate to protect non-classified information systems at the highest security level and to take all steps, including regular auditing, to ensure that government authorities accessing beneficial ownership information do so only for authorized purposes consistent with the CTA.

State Corporate Transparency Laws

New York has proposed a similar transparency act.  If signed into law by the governor, the law would require limited liability companies formed or registered to do business in New York to submit the same beneficial ownership report required by the CTA.  However, the state will make the name and address of each beneficial owner publicly available in a searchable database.

California has also proposed, but has not yet passed, its own corporate transparency act.

Steps to Take Now

We recommend you take the following steps now:

• Identify entities within your corporate or fund structure that may need to file a report.
• Identify whether you and any or all of your affiliate entities qualify for any exemption.
• If any entity within your organization is not exempt from the reporting requirements, identify each such entity’s beneficial owners.
• Collect the required information about the entity and its beneficial owners.
• Develop a system for updating and correcting beneficial ownership information regularly. This may include reviewing agreements to ensure that they include a requirement that anyone who could be a beneficial owner must provide the company with updated and accurate information on a timely basis in the future (and ensuring the all new agreements include such an obligation).
• Establish procedures for filing initial and updated reports with FinCEN and for ensuring compliance with the CTA for any newly formed entities.

Please contact your relationship lawyer at Dentons or anyone listed below to discuss how these rules apply to your company and its affiliates and to assist you in connection with your obligations under these complex new requirements. 

For more information contact: